Episode 4: The role of used serviceable material (USM) in the · 2021. 3. 3. · A320 A330 737NG 757 767 777-2/300 The 737, 757, 767 have some level of protection for those specific

Episode 4: The role of used serviceable material (USM) in the industry restart

Wed. 30 September 2020 - 7:30-9:30am EDT

• This session is recorded.

• Your mic is automatically muted.

• Poll: Click on Submit once you have selected your answer

• Use the Q&A feature on the right side of your screen to submit your questions to our panelists

September 30, 2020MCC 2020 Webinar Series - Episode 42

Competition Law Guidelines

IATA’s Legal Anti-Trust Counsel will be screening the questions


Daniel Kanter

Assistant General Counsel, IATA

[email protected]

mailto:[email protected]

http://www.iata.org/mcc

Opening Remarks

• Role of the MCC

• MCTG Data collection

www.iata.org/mctg

• IATA resources about COVID

• Poll and Q&A


• Our moderator today:

Chris MARKOU

Head, Operational Cost Management – IATA

[email protected]

http://www.iata.org/mcc-2020

http://www.iata.org/mctg


Previous Episodes

• Episode 1 • Economic context and forecast; aircraft

parking/storage strategies

• Episode 2• Adapting to exceptional circumstances

(transport of cargo in the passenger cabin; aircraft cleaning & disinfecting; fuel testing & biocide treatment)

• Episode 3• How COVID-19 is reshaping the aircraft

leasing and MRO businesses

Watch all episodes on www.iata.org/mcc-2020


http://www.iata.org/mcc-2020


Episode 4 - Agenda

• Opening Remarks & Introductions

• Trends on USM Market

• GA Telesis

• Aerodynamic Advisory

• VAS Aero Services

• Incident Clearance Statement (ICS)/Non-Incident Statement (NIS) – IATA

• Consumable Stock Optimization with Data Science and AI – Icelandair

• MRO SmartHub – IATA

• Episode 4 & MCC 2020 Wrap-up



COVID-19 impact on world fleet


Source: Cirium Global Average Daily Utilization (hrs/day)

>9 5 <6 6 <7

65% grounded

34% grounded

Poll



Oops, technical glitch here!

Please go to page 54 for the poll results.


Introductions


Tommy HUGHES

President & CEO – VAS Aero Services

[email protected]

Jens BJARNASON

SVP Corporate Affairs –Icelandair

[email protected]

Jonas MURBY

Principal - AeroDynamic Advisory

[email protected]

Garath HARRIES

Product Manager and Business Development for MRO SmartHub –IATA

[email protected]

Abdol MOABERY

President & CEO – GA Telesis

[email protected]

Chris MARKOU

Head, Operational Cost Management – IATA

[email protected]







11

Intelligently Defining Aviation

Episode 4

The Role of Used Serviceable

Material (USM) in the Industry

Restart

Presented by:

Abdol Moabery, President & CEO

12

GA Telesis is the only aftermarket company with significant operations on five continents

GA Telesis proprietary document – cannot be reproduced or transmitted without written authorization

Sophistication Era2001-2020

• The USM market was born and money poured in• Sophisticated companies entered the USM market• Technologies were developed to help airlines manage

USM• Almost every airline in the world adopted USM

integration • Almost Every OEM entered the USM market

Sector Expertise Era1990-2001

• Many new companies emerge from pioneers and early adopters

• OEMs take notice and a few enter the surplus market sector• More and more airlines start integrating surplus parts into

their maintenance philosophy

Opportunist Era1950s-1990

• USM suppliers were not very prevalent• USM was not widely accepted by airlines • Referred to a surplus parts

Smart Data Era2020 – Going Forward

• Unprecedented inventory levels of USM will come to market thru 2030

• Buying decisions will be made via algorithmic adaptation models

• A constant drive towards optimization will result in a need for less inventory

The EVOLUTION of the USM Market


LET’S LOOK BEHIND THE SCENES


I am purposely not including MD-80s, 737 Classic, A340 & A380 et al as they were in distress prior to COVID-19


331 88 1714 1 0

45

233977 305621

116

34 34

149

170

816237

445

19

79

81487126

434

127

231

17014 2

137

129

30

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

A320 A330 737NG 757 767 777-2/300 777-300ER 787

Vulnerable - In Demand - Key Aircraft Models

<5 years 5-10 years 11-16 years 17-22 years 23+ years

Part-out potential

Some Parked Aircraft Will be Parted-out Prematurely Due to a Lack of Demand

The problem is exasperated for engine OEMs because of the

amount of maintenance deferments due to available Greentime

Data Source: Naveo

https://www.linkedin.com/


487

126434

127

231

170

142

137

129

30

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

A320 A330 737NG 757 767 777-2/300

The 737, 757, 767 have some level of protection for those specific aircraft that are freighter candidates

17-22 years 23+ years

Digging Deeper - Maintenance Cycles May be a Driver as to What gets Parted-Out

The A330-300 makes a great freighter, but adoption has been slow

The 777-2/300 (non-ER) will vastly go to part-out thus saturating the market for the foreseeable future

Data Source: Naveo

Over 1,000 aircraft at risk of premature

part-out


SO WHAT’S HAPPENING IN THE USM MARKET TODAY?


Engine Impact


This downcycle is seeing enormous pressure on older CFM56-5/7, V2500-A/D, RB211-

535 & Trent 700/800, PW4000 (94”,100”, 112”), CF6-80C2 and GE-90 engines

The sheer amount of Greentime that is coming available is causing maintenance

deferments on certain models that will last for up to 4 years

Post Greentime most engines will not be overhauled but rather disassembled where

the USM will be used as an alternative to new and thus impacting the engine OEMs

The COVID-19 cycle is somewhat different than other industry cycles whereby there

will be newer aircraft models retired prematurely thus putting GE90-115B, GENx, GP

7000, Trent 900 and Trent 1000 engines in the crosshairs

While there is little to no part-out market for the new-tech engines above, the

availability of Greentime will impact engine MROs and OEMs as shop vists are

deferred into the future

Due to the availability of significant amounts of USM it is more economically

feasible to short-build engines thus impacting MROs and OEMs

The Engine USM Market Will Feel the Impact

USM

T

O

D

A

Y

Airframe Impact


There is tremendous pressure on existing pooling and cost-per-hour models as

airlines will favor a pay as you consume model

Airlines are parting-out their own airframes to harvest the key components that they

consume and either sell, consign or scrap the remaining parts

Airlines are burning Greentime on major components like APUs and Landing Gear

before consuming replacements or performing maintenance

Airlines are cannibalizing parked/stored aircraft before buying parts (new or USM).

With many OEMs in the USM market it is hard for them to differentiate New part

benefits from USM

Airlines are operating their newest most maintenance ready aircraft and

parking/storing aircraft in need of maintenance or major parts

With the amount of USM available, the market prices are becoming commoditized

more than before COVID-19 and therefore values are very volatile

The Airframe USM Market IS Under Constant Pressure

USM

T

O

D

A

Y

Tiering


Airlines will gravitate towards larger suppliers because of their ability to maintain

inventory levels sufficient to support their operations

Airlines will focus on suppliers capable of offering integrated services beyond just

providing parts

Airlines will be drawn to USM providers that can provide financial structures around

new and USM inventory

Airlines will look at suppliers to provide financial flexibility for the foreseeable future

and this will take balance sheet strength

The Market is Heading Towards Supplier Tiering

SUPPLIER

AIRLINE

Tier 1

Supplier

Tier 1

Supplier

Tier 1

Supplier

Tier 1

Supplier

Tier 2

Supplier

Tier 2

Supplier

Tier 2

Supplier

Tier 2

SupplierTier 2

Supplier

Tier 1 Supplier are: > USM $150M Annual USM SalesOEMsMajor Airline MROs

S

H

I

F

T

WHAT WILL HAPPEN NEXT?


Inventory

Risk USM Suppliers

OEMs

MROs


Airlines will favor a model whereby the inventory that supports them does

not reside on their balance sheet

Started with aircraft leasing and moved to include engine leasing

Going forward…

The Role of USM in the Industry Restart

• OEMs will try to play a more active role in USM to attempt to capture the displaced revenue lost from selling new replacement parts

• USM Suppliers will become more of a competitor to OEMs NEW PRODUCTSbecause of the sheer volume of USM inventory availability

• MROs will have to adopt an inventory rich model to support the airlines


USM Suppliers

OEMsMROs

Engine USM

Engine USM Will Hold Value for core fleet engines

Airframe

USM


✓ Models used for cargo aircraft as well as core Narrowbody will maintain strong demand

✓ Engine USM will be used as a cost saving mechanism for engine operators and owners

✓ Eases engine OEM advantage✓ Can have increase MRO effect for some

due to affordability of short build engines✓ OEMs that have USM businesses will

potentially have a conundrum – sell new parts or sell USM ✓ While there will still be 1,000s of core

fleet aircraft flying, the sheer number of available airframe parts from part-outs will depress pricing for years to come

✓ Airlines will be forced to part-out their own airframes because there will not be enough buyers for the volume of airframes coming to market

✓ Airlines will consume their own material versus buying

✓ Airlines will prefer to not own inventory

Airframe USM Will Become an Extremely Volatile and Difficult Market

Digital Technologies & USM

The entire replacement part market, including USM, as well as MRO will shift towards a technology driven AI solution


✓ Combination of aviation sector expertise and technology combined with tools from the IOT✓ Data science will be used for the creation of an AI system to be predictive versus reactive ✓ Blockchain system of record is a potential solution that solves for a critical trust component

#01

Since COVID-19, airlines are and will continue decoupling from exclusive programs in favor of bundled services without an

advanced or current pay element

Decoupling

#03

USM suppliers will play a greater role by working with airlines and integrating

their USM with supplier USM to maximize accessibility, while also

reducing cost and utilizing their own assets through the entire lifecycle

Integration

#04

USM consumption will be data driven. Airlines and the entire supply-chain will need to evolve into a universal system linking airlines, OEMs, MROs and USM

providers to use the collective data, combined with AI, to drive efficiency

and cost savings

Data Strategy

#02

Airlines will partner with USM suppliers to ensure alignment of

objectives and services levels while also allowing the airlines access to

the greatest amount of USM inventory in the sector’s history

Partnership


Four Things That Will Inevitably Happen

Risk Transfer Risk Mitigation

https://www.facebook.com/

GA Telesis Digital

Technologies

In 2018, GA Telesis identified and created a new software division to address the current and future needs of aviation addressing security, reliability, safety, asset valuation and efficiency.

The digital division implemented a software factory model, designed to quickly deliver complex, artificial intelligence aided solutions both in aviation and finance.

Current Projects

✓ BlockIt™ A secure, blockchain based financial messaging platform

✓ SmartCerts™ An aviation, blockchain based system for digital records, value capture, optimization and transparent data exchange to address the lifecycle of USM from birth

// Leading through innovation



28

Scan a component and let it describe

itself!

Global

Collaboration

Universal

Format

Digital Twin

What if…We worked together to transform our industry?

Global System of Records

▪ Back to birth trace

▪ Non-incident statements

▪ Bill of sale / Packing slips

▪ Repair reports

▪ On and off logs

▪ SB/AD status

▪ Maintenance history

▪ Warranty information

▪ No Fault Found

▪ Engineering

troubleshooting

▪ Etc….

29

Leasing Companies Can digitally inspect their assets upon return analyzing return conditions and quickly turn around assets. Instant billing to lessors.

MROs Can partner with operators to plan incoming workloads and help the industry by digitizing ongoing trace records. Full subcomponent history.

OEMsCan easily maintain a digital footprint of reliability and maintenance from birth to the aftermarket

Aviation AuthoritiesCan increase safety by full oversight to ensure airworthiness directives and maintenance compliance.

AftermarketCan procure and sell assets and USM easier, safer and faster with digital trace. The end of the Non-Incident Statement.

Airframers & Engine OEMsManufacturers can boost R&D with a complete view of their product, its maintenance cycles, and its fuel burn

Airline Operators Automatically allocate maintenance resources and $ based on technical needs by fleet type. Automatic warranty management and down time visibility. Engineers sharing information globally.

Everyone Benefits

30

Timely Information Delivery safety information, service bulletins and airworthiness directives with the ability to track compliance

Identify Rouge PartsQuickly identify rouge parts that can cause costly repairs and warranty re-work resulting in significant down-time for the airlines

Better TroubleshootingUse pattern recognition to surface similar problems and suggest troubleshooting guides across a global industry and fleet

Instant CredibilityGain instant credibility by proving digital trace that complys with the customer or airline's requirements

ImagineWhat the industry can

achieve within this network?

Our only limit is

our imagination

of what’s

possible!

What if…The future of USM looked like this?

31

Asset ValueWith easy, fast and complete back to birth trace, assets retain their value

EfficiencyEasy part sales, warranty, replacement, troubleshooting and turn-around-times

SafetyCreating a system of trust in order to break down data silos and share pertinent information

ReliabilityUse network to identify and reduce repeat problems, identify rogue parts and assist with engineering

It’s Time For TransformationHere’s how the aviation industry benefits!

Respecting each others privacy and right to intellectual property!

32

To all the Let’s talk future!TRAILBLAZERS

PREPARED FOR

The Evolution of the USM Market

Status and Outlook

30 September 2020

AeroDynamic’s forecast is for air travel to recover in late 2023…and possibly later

34

AeroDynamic’s COVID-19 Global Traffic Scenarios

› The nominal scenario assumes vaccine created in early 2021 and widely distributed 6-12 months later

› The downside risk is greater than upside opportunities; it may take an additional two years for full recovery

› Even in the optimistic scenario, the industry loses three years of air travel…and demand for new aircraft

THE COVID-19 CRISIS

Source: AeroDynamic Advisory

2024202320202019 2021 2022 2025

-

500

1,000

1,500

2,000

2,500

3,000

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Nominal Pessimistic Optimistic Pre-COVID

Qu

art

erly R

PK

s (

bill

ion

s) ** *

Recovery to Q4

2019 Levels

September 30, 2020

MCC 2020 WEBINAR SERIES - EPISODE 4

35

MRO will suffer an unprecedented decline…in tandem with production


MRO OUTLOOK

35

› The scale of the drop is unprecedented in MRO/aftermarket in the jet age

› Never before have production and MRO experienced traumatic recessions at the same time

› The financial implications are massive for engine OEMs, which make 100% of their commercial profits from the aftermarket

› The downturn will also challenge the ambitious service revenue goals of aircraft OEMs

ImplicationsIndexed Recovery of Air Transport MRO (2019 = 100)

0

20

40

60

80

100

120

140

Engine MRO

ComponentMROLineMaintenanceAirframeMROModifications

Total MRO

September 30, 2020


1,196

982

617

433

700 713

1,425

1,264

970

752

453412

1,770

1,545

1,175

961

557493

2020 2021 2022 2023 2024 2025

Optimistic4,642 Aircraft

Nominal5,275 Aircraft

Pessimistic6,501 Aircraft

Pre-COVIDOutlook3,690 Aircraft

36

Approximately 5,300 aircraft will retire under the nominal scenario, or ~1,600 more than the pre-COVID outlook

Source: CAPA, AeroDynamic Analysis

FLEET OUTLOOK – RETIREMENTS

Preliminary Air Transport Retirement Forecast, by Scenario

Scenario, 2020-2025

Retirements

464

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2019 Actual

September 30, 2020


Three phases will define the impact of COVID-19 to the commercial aftermarket

37

Phase 2: Airline Downsizing & Intra-Fleet Greentime

MRO OUTLOOK - USM


Phase 1: Airline Survival

Phase 3: Part-Outs & Surplus Wave

(continues into and beyond 2022)

Expected Phases of COVID-19 Recovery & Aftermarket Impacts

Q2

2020

Q2

2021

Q3

2020

Q4

2020

Q1

2021

Q3

2021

Q4

2021

Q1

2022

Q2

2022

› Parking & storing excess aircraft

› Headcount reductions and part-time schedules

› Inventory burn-down

› Minimize MRO and parts expenditures

› Poor aircraft residual values with excess supply

› Renew long-term fleet and

retirement plans

› Extract remaining useful time

(greentime) of existing fleets, and

then shed excess capacity

› Residual values begin recovering

› Excess fleets are torn down and parts

are recertified for sale onto the open

market

› Airlines begin to restock inventories

and resume normal MRO operations

September 30, 2020


While annual retirements are expected to reach record levels, AeroDynamic projects that part-out activity will remain tepid until MRO demand recovers, but could reach ~680 annual part-outs by 2023

Source: AeroDynamic Analysis

RETIREMENTS & PART-OUTS

2019-2025 Estimated Retirements & Part-Outs

-

200

400

600

800

1,000

1,200

1,400

1,600

2019 2020 2021 2022 2023 2024 2025

Retirements

Part-Outs

38

Estimated Global Part-Out Capacity

Part-Out Delay Contributing Factors

› Airlines and lessors waiting for market value of assets to recover to at or above book value

› Lessors keeping assets placed at customers at significant discounts

› Low costs of parking & storage

› Poor MRO demand for surplus parts

› Near-term shortage of part-out capacity as suppliers make more room for aircraft storage –constraints will loosen as aircraft return to service

September 30, 2020


39

The share of surplus material generated from part-outs could decrease due to excess inventories from airline bankruptcies & failures, as well as excess inventories at OEMs and MROs


SURPLUS MATERIAL

Estimated Breakdown of Surplus Material Sources, 1990-2025

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1990 2000 2010 2020 2025

Excess Inventories

Retirements???

Implications

› More surplus material

generated from excess

inventories

› More surplus

consumables &

expendables

???

September 30, 2020


Pre-COVID Component MRO Market*, By Contract Type

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1998 2018 2023

Integrated Bundles Other

Outcomes

› Integrated bundles have been on the rise for decades

• Provided with airlines with guaranteed service level and affordable access to asset pools

• Suppliers got long-term predictable revenue

› Unpredictable environment post-COVID

• Airlines in need of greater flexibility

• Uncertainty increases the risk element of integrated bundles, which are seen as expensive insurance

› Increasing prevalence of substitution from USM following part-out wave

40

The world of integrated contracts may undergo significant change, as customers become fewer, substitutes more prevalent and suppliers are reshaping their operations

INTEGRATED CONTRACTS

Source: AeroDynamic Advisory (*) Excludes APU, Landing Gear,

Wheels & Brakes, Thrust Reversers

?

September 30, 2020


Recent Aviation Suppliers Association / AeroDynamic Advisory Survey:

How do you expect USM revenue to develop over the next 3 1/2 years? (2019 = 100)

0

20

40

60

80

100

120

140

2H 2020 2021 2022 2023

<$50m

>$50m

41

According to a recent survey, USM is expected to recover in 2023; large suppliers are the most optimistic

USED AND SERVICEABLE MATERIAL & PART-OUTS

Source: 2020 ASA & AeroDynamic Advisory COVID-19 Aftermarket Survey

n = 44n = 44

› USM is the most rapidly recovering segmentaccording to survey respondents

› Expect market share gain for USM over:

› PMA

› New OEM parts

› High-value MRO

› Large companies (>$50M) are more bullish,expecting recovery already by 2022

Supplier

revenue

September 30, 2020


+1 (734) 773-3899

121 W Washington Street, Suite 400Ann Arbor, MI 48104

www.aerodynamicadvisory.com

AeroDynamic2019 Winner of Choice

Outstanding Academic

Title Award

Jonas Murby

Principal

The information contained in this document is VAS Aero Services, LLC proprietary information and it shall not – either in its original or in any modified form, in whole or in part – be reproduced, disclosed to a third party, or used for any purpose other than that for which it is supplied, without the written consent of VAS Aero Services, LLC.

Any infringement of these conditions will be liable to legal action.

VAS Market Brief

Tommy Hughes Chief Executive Officer

IATA MCC Webinar

Sept. 30th, 2020

Airframe~60%

Engine~40%

Consignment~45%

Strategic Sourcing

~35%

Asset Solutions~15%

Order Sourcing~5%

Core Competency

Revenue Breakdown (2020)

• VAS Aero Services is the leading provider of re-distribution services for aftermarket parts serving

the global aviation sector with a focus on Used Serviceable Material (“USM”)

• VAS uses an asset light approach through exclusive agreements to connect buyers & sellers of parts

VAS is the One of the Largest Independent Re-Distributors of Aftermarket Aerospace Parts

Service Offerings Platform Mix

$4+ BillionNew and Used Parts Sold Since Inception

850+Customers

1.1 MillionUnique Material

Numbers

40 YearsOperating History

100%CommercialAftermarket

VAS Aero Services – Company At a Glance

Industry Impacts From COVID-19

45

• Crisis unlike past major events (9/11, SARS, 08’ financial recession)

• Significant reductions in passenger flights & traffic across all global

regions

• Aircraft Manufacturers hit with reduced production rates and orders

cancellations

• MRO providers impacted greatly by scheduled & un-scheduled events

• Component OEMs will require a deeper interface into the USM

segment

• Lessors still scrambling to support operators with storage and early

lease returns

• USM Suppliers witness significant demand reduction from Commercial

Airlines and MRO providers

World Fleet Status

46

As of September ~38% (13,000 AC) of the air transport fleet is categorized as Parked/Stored

Aircraft Retirement Projections

47

• Through September ~465 aircraft will be retired from the market.

• Some projections associate as many as 1,500 retirements annually.

• What is the actual dismantlement capacity and does demand support the increased supply?

Demand For Cargo Operations During Crisis

48

Strong need for air cargo (PPE equipment, eCommerce, shipments in passenger cabins)

VAS Market Intelligence Tools During This Crisis

49

• Component demand levels impacted by 50% or more within specific regions, customers, and

timeframes, efficient IP tools & eCommerce drives VAS’s business more than ever.

• VAS’s IT infrastructure and capabilities are constantly evolving to remain a leader for market intel tools

and customer data integration. (i.e. SAP experience & Voice Over IP Network)

• VAS is integrated with large strategic partners to exchange real-time data and manage transactions

seamlessly and virtually.

• Industry resources will be affected. Digital connectivity, while providing availability and transaction

efficiency will be increasingly required from aftermarket providers. The race for digital transparency and

efficiency is in full gear.

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=4Pd4Jd0ApJTgRM&tbnid=qSMOeW8iKVngIM:&ved=0CAUQjRw&url=http://www.colourbox.com/vector/illustration-of-computer-connectivity-on-white-background-vector-2361470&ei=182FU8XGILCisATTtYCYBA&bvm=bv.67720277,d.b2k&psig=AFQjCNFTAFf0WT1Imesde7TBhq0bLaqLOg&ust=1401364223380683

Global Network and Efficient Operations

Shanghai

Bangkok

Singapore

Adelaide

Tel Aviv

Zurich

Buenos Aires

Atlanta

Cincinnati

Phoenix

Seattle London

Tarbes

Boca Raton

Sales Office / Warehouse

Sales Office & Marketing Presence

• The Company maintains a global network with

aggregate warehousing capacity of approximately

450,000 ft2

• VAS has deployed “lean” tools and procedures to maximize

accountability and improve KPIs

• More than 40% of the Company’s annual investment in IT

and other programs is focused on accelerating speed

through VAS’s distribution network

• SAP enterprise environment provides scale in both the

number of lines managed (>900,000) and speed in B2B

integration, typically providing a 50% reduction in

complex customer integrations

• Typical partner integration takes less than 30 days

• VAS has been operating SAP for over 12 years and has

leveraging system enhancements and implemented

industry-specific upgrades

50

The information contained in this document is VAS Aero Services, LLC proprietary information and it shall not – either in its original or in any modified form, in whole or in part – be reproduced, disclosed to a third party, or used for any purpose other than that for which it is supplied, without the written consent of VAS Aero Services, LLC.

Any infringement of these conditions will be liable to legal action.

Thank you for your time and attention


- Q&A -USM Market


Poll



Poll Results

When will demand for travel be back to 2019 levels?


Incident/AccidentClearance Statement (ICS)

Chris MarkouHead, Operational Cost Management – IATA

While Trading USM…

• Commercial interests have added a lot of paperwork.

• The NIS (Non-Incident Statement) is one piece that may be asked for.

• It states that the Aircraft/Engine has not been involved in an Incident.

• The purpose of the Incident/Accident Clearance Statement (ICS) is to declare that the aircraft/engine/part has been deemed acceptable for continued use.


From: Non-Incident Statement (NIS)

• Adds unnecessary paperwork

• Does not add anything to Safety

• Loss of Asset Value

• Difficult to obtain


To: Incident/Accident Clearance Statement (ICS)

• Adds unnecessary paperwork

• Does not add anything to Safety

• Agreed upon by IATA & AWG*

• Step in the right direction!!!

30 September 2020

*Aviation Working Group: Lessors’ Association

Ultimate Goal

Incident/AccidentClearance Statement (ICS)

Airworthiness Tag:Form 1 / 8130-3

Issue of Trust to our Quality System!!!

Details at www.iata.org/altg


http://www.iata.org/altg

Thank you!

Jens Bjarnason PhD, SVP Corporate Affairs

Consumable Stock Optimization with Data Science and Artificial Intelligence

• Ever increasing inventory of consumable material –

average increase of 3% per year, even for a stable

operation

• Consumable material ordered for a specific

maintenance task frequently not used

• Despite increase in inventory, service level remains

stagnant, about 85 – 90%

What is the Issue? Do We Have a Problem?

Yes, We Do

• Implementation of an internal approval process to

discourage excessive purchasing

• Sales effort to reduce unused inventory

• Use of material forecasts generated by built-in utilities in

Maintenance IT platforms (Amicos, TRAX, Maintenix)

• Various in-house software and methods, such as Excel,

Power BI, etc.

• None of the above actions resulted in significant

improvements

• Why?

What Has Been Done to Address the Issue?

62

MCC 2020 Webinar Series - Episode 4

• Raw historical usage

• Simple forecasting methods such as moving average

• Tools such as regression and exponential smoothing

Current Forecasting Methodology

• The number and frequency of aircraft part movements

(one movement is defined as either entry into or removal from

a registered inventory) is simply not sufficiently high for

traditional statistical forecasting methods to work

Why Don't Traditional Methods Work?

63

Monte Carlo SimulationA Very Brief Background


64

• In 1939, a few scientists who had escaped Nazi Germany reported that Germans

were making significant strides towards building a nuclear bomb

• These scientists, including Albert Einstein, wrote to Franklin D. Roosevelt

expressing their concerns

• This led to the launch of the "Manhattan Project" to develop a nuclear bomb for

the United States

• As part of this work, nuclear diffusion studies led Stanislav Ulam and John von

Neumann to develop a randomized algorithm to determine distribution of

neutrons in nuclear diffusion

• Their method came to be known as Monte Carlo, due to the secret nature of their

work and/or randomized approach they used

• Since its inception, Monte Carlo has been applied successfully to a large variety

of problems

• In this example, the method has shown to be ideal as a forecasting tool for use of

aircraft consumable material

• The key is the ability to deal with parts with few movement (low usage)

65

Monte Carlo Simulation – A Brief History


Example:

• Known part movement history

• Need to forecast future purchases, based on:

• Desired Service Level

• Expected Usage – This is essential, Monte Carlo

Simulation can predict this accurately for a given service

level

• Lead Time

• Buying Frequency

• Minimum Package Size

• Etc..

66

Monte Carlo Simulation in Consumable Material Management


Example of Low Usage Material Movement

0

1

2

3

201

9-0

1-1

9

201

9-0

2-1

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3-1

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8-1

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9

Qty

Dates

September 30, 2020


67

Monte Carlo Simulation -Example

• The part has a 10-day lead time. To generate a 10-day usage

forceast we take usage for a randomly selected 10 days in

movement history

• This is repeated for randomly selected 10 days until statistical

stability is reached (typically 1,000 - 3,000 selections)

• When statistical stability is reached, 10-day usage can be

forecasted for any desired service level

• In this example, eight movements can be predicted within 95%

accuracy

68


To get as good forecast as possible we use

• Historical data

• Desired service level

• Historical and future events such as C-Checks and A-Checks

• Historical and future flight hours and cycles

To create purchasing suggestions

• We use the forecast

• Stock level and qty on order

• Other relevant factors such as package sizes, min order qty

form vendor etc.

Can This Prediction Be Used to Manage Purchasing?

69


Icelandair Case Study


S i mu l a t i on o n s e l e c ted c o n s umab l e p a r t s

u s i n g d i s c r e t e o p t i m i z a t i o n a l g o r i t hm

I n ve n t o ry r e d u c t i on b y 2 5 % i n f o u r m o n t hs

p r e d i c t ed b y s i m u l a t i o n

400000

500000

600000

700000

800000

900000

1000000

1100000

201

9-1

2-3

0

202

0-0

1-0

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1-0

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2-0

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2-1

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2-1

3

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2-1

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202

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2-2

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0

Simulation

simulated_inventory

71



Excellent conformity between simulated and actual stock

level for first three months

Divergence between simulated and actual stock level

observed after three months is due to reduced production

during Covid-19 lockdown

Overall results is 25% stock level reduction – with

significantly higher cervice level (over 95%) 400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000 Goals vs. Real

simulated_inventory real_inventory

72


1. Demonstrated savings of 25% due lower inventory and lower

numbers of AOGs and material shortages

2. Advanced discrete mathematical modeling not used in

any other purchasing system today

3. Cloud based, user friendly system

4. Key to success is implementation of agile and

lean culture focused on cost savings

Summary

Questions?


- Q&A -Icelandair


IATA’s unique solution for the valuation of USM

September 30, 2020 Confidential material under copyright, property of IATA

Garath HarriesProduct Manager & Business Development MRO SmartHub

Industry Transparency – Neutral, Unbiased Valuations

September 30, 2020Confidential material under copyright, property of IATA77

➢ Increase transparency to valuation, pricing & availability of USM

➢ Central / neutral platform to transact & benchmark

➢ Increase asset utilization functionalities

➢ Ensure a systematic valuation process

➢ Unbiased viewpoint of valuation for airline, MRO, OEM and aftermarket vendors

➢ Increase asset value management & marketability

EvaluatorProvides Fair Market Value and detailed statistics for surplus parts

September 30, 2020Confidential material under copyright, property of IATA78

IATA MRO SmartHub is a web-based business intelligence platform enabling:

o Quick and accurate evaluation of excess inventories

o Transparent fair market value and true availability of surplus material

o Reduction in material cost while maximizing usability of on-hand inventory

o Buy, Sell, Exchange, Consignment

o Effortless integration and enhancement into any ERP system and other MRO tools

ConnectorEases trading with preferred partners through a distinctive trading channel

KPI‘s IATA MRO SmartHub – Evaluator

➢ Time period covered: Jan 2018 – Sep 2020

➢ 1.15 million transactions ➔ ~ 175,000 part numbers

➢ 0.7 million MRO events ➔ ~ 17,000 part numbers

CUE, 38.48%

Unknown, 5.83%

COM, 49.86%

LDG, 0.61%ENG, 4.79% ARC, 0.43%

Transactions per material domain

CUE Unknown COM LDG ENG ARC

NE, 46.13%

SV, 49.51%

AR, 3.48% OH, 0.83% NS, 0.04% US, 0.01%

Transactions per material condition

NE SV AR OH NS US


Source: IATA MRO SmartHub Evaluator

➢ ~ 1 million part numbers in parts catalogue with FMV

➢ Coverage: ~ 100 aircraft types & engine models

KPI‘s IATA MRO SmartHub – Connector

➢ Unique part numbers listed: 28,969

➢ Total units listed: 336,263

➢ Value in USD of all units listed: ~ $212 millions

COM

59.20%

Unknown

26.31%

CUE

12.87%

ARC

1.28% LDG

0.06%

ENG

0.28%

Listings per material domain

COM

Unknown

CUE

ARC

LDG

ENG

SV

21.84%

NE

37.60%

OH

2.67%

AR

37.88%

US

0.00%

Listings per material condition

SV

NE

OH

AR

US


Source: IATA MRO SmartHub Connector

MRO costs and global COVID impact

September 30, 202081

24.5%

13.1%

11.2%

7.6%

7.7%

7.0%

6.8%

6.2%

5.2%

5.1%

4.3%

1.1%

0.2%

Fuel and Oil

Aircraft Owership

Maintenance And Overhaul

Reservation, Ticketing, Sales and…

General and Administrative

Station and Ground

Flight Deck Crew

Airport Charges

Passenger Service

Cabin Attendants

Navigation Charges

IT and Communications

Flight Equipment Insurance

0% 5% 10% 15% 20% 25% 30%

Confidential material under copyright, property of IATA

➢ Total demand for MRO in 2020 is estimated to be $50.3 billion.

➢ Spending on all parts and materials is estimated at $26 billion.

➢ Forecast for USM will be $2.8 billion in 2020. Down from $4.7 billion in 2019, a 40% reduction year on year.

➢ As flying and material spend return, expect USM demand to grow significantly at 68 percent per annum through 2022, when market can be expected to reach $7.9 billion.

Source: Oliver Wyman

Increase in Aircraft retirements – Impacts on USM availability


➢ Impact of COVID will see an increased rate of aircraft retirement and teardown.

➢ Increased supply will lead to downward pressure on prices of used components and parts for popular legacy types.

2.6


COVID-19 Impact on Market Dynamics


➢ Reduction of 90% in overall spare parts transaction volume.

2.6

0

20

40

60

80

100

120

140

160

Tra

ns

ac

tio

n v

olu

me

ind

ex

(JA

N1

9 =

10

0)

Monthly average



Significant increase in price volatility due to COVID-19


➢ The figure compares price levels for the first six months of 2019 to 2020.

2.6

0

20

40

60

80

100

120

140

160

180

J F M A M J J A S O N D

Pri

ce

lev

el i

nd

ex

(Av

g p

ric

e 2

01

9 =

10

0)

Price volatility

2019 2020



Future of USM market

➢ USM will play a significant role in industry recovery.

➢ Significant pricing volatility as supply increases & demand reduced.

➢ USM will become an increasingly acceptable lower cost alternative to new

OEM parts.

➢ Determining fair market value (FMV) and securing reliable access to USM

will be critical activities.

➢ Demand for USM is expected to be very strong in the medium term.


Source: Oliver Wyman

IATA MRO SmartHub – Business Critical Intelligence

➢ Fair Market Value (FMV) data linked to actual market transactions.

➢ Unique market insights based on algorithmic approach to FMVs for aircraft spare

parts.

➢ Community-driven data contribution enriches overall insights by providing

benchmarking data.

➢ Data contributions are anonymized and secure; only subscribers can view their own

data points.

➢ Provides granular intelligence at the part number level, based on material condition.


Questions?➢ Register for a demonstration, and free access to the platform for a limited period:

➢ www.iata.org/covidmro

➢ Subscribe through our website to receive further updates:

➢ www.iata.org/services/safety-flight-operations/Pages/mro-smarthub.aspx

➢ COMING SOON: Our Whitepaper detailing the full impacts of COVID-19 on market dynamics and pricing volatility of spare parts

➢ Full evaluations and detailed statistics available only on IATA MRO SmartHub.


Main Contact:Garath HarriesProduct Manager & Business [email protected]+1-514-466-3701

Email us at:[email protected]

http://www.iata.org/covidmro

http://www.iata.org/services/safety-flight-operations/Pages/mro-smarthub.aspx




- Q&A -MRO SmartHub


IATA COVID-19 Resources


www.iata.org

www.iata.org/en/programs/covid-19-resources-guidelines

www.iata.org/en/pressroom/covid-19-news

airlines.iata.org/topic/covid-19

http://www.iata.org/

http://www.iata.org/en/programs/covid-19-resources-guidelines

http://www.iata.org/en/pressroom/covid-19-news

https://airlines.iata.org/topic/covid-19

Episode 4: The role of used serviceable material (USM) in the industry restart

Thank you for attending!

Any further questions? Please email Geraldine Cros ([email protected])


Documents

Episode 4: The role of used serviceable material (USM) in the · 2021. 3. 3. · A320 A330 737NG 757 767 777-2/300 The 737, 757, 767 have some level of protection for those specific